Someone dies and an interest in possession comes to an end

This happens in interest in possession trusts - where a beneficiary has an immediate and absolute right to income from an asset held in trust. There’s usually no Capital Gains Tax to pay when the beneficiary dies and their interest in possession comes to an end.

Work out how much Capital Gains Tax is due

Capital Gains Tax on trusts is worked out for each tax year (which runs from 6 April one year to 5 April the next). You can work out how much you need to pay by following 4 steps:

Work out the gain or loss for each item you sell, transfer or otherwise dispose of, taking off any allowable costs and reliefs.

Take off the trusts’ total allowable losses from the total gains - to arrive at the net gain or loss.

Trustees pay 10% Capital Gains Tax on qualifying profits if they sell assets used in the beneficiary’s business, which has now ended. They may also get relief when they sell shares in a company where the beneficiary had at least 5% of shares and voting rights.

Example

In 2008 to 2009 a trust has capital gains of £12,000 and allowable losses of £15,000. The trustees take the losses away from the gains, leaving no chargeable gains for the year. There’s no Capital Gains Tax to pay and unused losses of £3,000 to carry forward to 2009 to 2010.

In 2009 to 2010 the trust has gains of £7,000 and no losses. The trustees only use £1,950 of the previous year’s losses to reduce the gain to the level of the annual exempt amount - £5,050 for 2009 to 2010. They still have £1,050 of unused losses left to carry forward to 2010 to 2011.

Tax-free allowance

Trustees only have to pay Capital Gains Tax if the total taxable gain is above the trust’s tax-free allowance (called the annual exempt amount).

Period

Tax-free allowance

Tax-free allowance if the beneficiary is disabled

6 April 2014 to 5 April 2015

£5,500

£11,000

6 April 2015 to 5 April 2016

£5,550

£11,100

6 April 2016 to 5 April 2017

£5,550

£11,100

6 April 2017 to 5 April 2018

£5,650

£11,300

If a trust’s settlor has set up more than one trust (settlement), the tax-free allowance will be divided equally between the number of trusts.

This is capped at a minimum exempt amount of £1,130 per trust, so if there are 5 or more trusts (10 or more, if for the benefit of a disabled person) they’ll each have a tax-free exemption of £1,130.

This only affects trusts set up after 7 June 1978, unless it’s a trust for a disabled beneficiary, in which case it applies to trusts set up after 9 March 1981.